Discussion of Family Law Appeals in Harris, Montgomery, Fort Bend, Brazoria Counties & Across Texas

Opinions, March 31, 2016: The Ghosts of QDROs Past & Future

The First District Court of Appeals released its published opinion in Howard v. Howard, No. 01-14-00761-CV, in which the Court of Appeals reversed and remanded the trial court’s determination of the meaning of the decree’s division of retirement benefits.

Winnie Howard and Stephen Howard married in November, 1979, and were divorced in November, 1988. Prior to marriage, Stephen worked for the Houston Fire Department. Six months after they were married, Stephen began working for the Houston Police Department and continued to work there after the divorce. The divorce decree provided that Winnie was entitled to:

One half of any and all sums related to any vested profit sharing plan, retirement plan, pension plan, employee stock option plan, employee savings plan or accrued unpaid bonuses, or other benefit programs existing by reason of [Stephen]’s employment during the marriage.

This is the language of the decree which determined the outcome of this case.

Stephen participated in the Houston Police Officer’s Pension System (“HPOPS”) from day one of his employment, making contributions of $20,765 during the 8.5 years he was married to Winnie and employed by HPD. If he terminated his employment before becoming vested in HPOPS, these contributions would be refunded to him. At the time of the divorce, HPOPS provided retirement benefits for employees who had served ten years and further benefits for those who had served twenty years.

Also, years after the divorce, the HPD made changes to the pension, adding two benefits: 1) In 1995, HPD offered the Deferred Retirement Option Program (DROP) benefit which provides an officer with 20 years of service with the option to defer retirement and if retirement is deferred, then eligible retirement benefits pay into another account while the officer continues working, which builds into a lump sum available when the officer actually retires. 2) In 1998, HPOPS added a $5,000 lump sum payment for retiring officers who had 20 years of service.

In 2001, HPOPS was amended so Stephen’s HFD service prior to and in the first six months of marriage counted toward HPOPS. Thus, in 1998, Stephen became eligible for DROP. He elected not to retire and participated in DROP, building up retirement benefits while he continued working.

In 2011, Winnie filed a Petition to Enter Post Divorce QDRO and an Amended Petition to Enter Post Divorce DRO, Clarify Prior Order and Division of Undivided Assets in 2012 in the 311th District Court.

After a bench trial in January 2014, the trial court ruled that Winnie was entitled only to one half of the payroll contributions on the date of the divorce (i.e. one half of $20,765.00), not to any benefits that Stephen accrued once he reached ten and twenty years of employment.

On appeal, the only dispute between the parties is the meaning of the language in the decree quoted above. Stephen argued that his payroll contributions of about $21,000 which he would be entitled to if he terminated his employment with the HPD were the only “vested” retirement benefit at the time of the divorce. The Court of Appeals strongly disagreed, finding that this interpretation

disregards the express terms of the parties’ agreed divorce decree because it ignores the provision’s use of the terms “all sums related to” and benefits “existing by reason of” employment during the marriage, which is broader than sums that are “then-existing.”

Particularly, the Court of Appeals found that if the decree was referring solely to the refund of those payroll contributions, it would have said so and the language like “all sums related to” would be surplusage:

By including broad, general language encompassing a variety of possible benefit plans, the decree contemplates the allocation of Winnie’s proportional future right to vested benefits that “exist[] by reason of” the marriage, so long as those benefits can be traced to the contributions made and service credit earned during the marriage.

The Court of Appeals also stressed that the use of the modifier “vested” did not overrule the remainder of the prospective and forward-looking language in the provision. In fact, Stephen had no vested retirement benefit on the date of divorce because he didn’t have the requisite years of service at that time. A refund of payroll contributions, the Court said, is not a retirement benefit, but a return of salary earned.

The Court of Appeals found that the trial court erred in its interpretation of the decree but it did not explicitly state what benefits Winnie was be entitled to. There is a strong implication that not only is she entitled to a pro-rata portion of the HPOPS benefits for ten- and twenty-year employees as provided in the plan at the time of divorce, but also a pro-rata portion of the $5,000 lump sum upon retirement and/or the DROP benefits traceable to the service credits accumulated during the parties’ marriage. But the Court of Appeals remanded for further proceedings. It’ll be interesting to see if it comes back up in the future.

This also raises the practical question of whether a different wording of the decree could have prevented this result for Stephen. It seems possible to me, but on the other hand, it’s hard to imagine an alert attorney agreeing to such limiting language.